ChartWatch: Ford Dip May Provide Great Entry

Ford Motor (NYSE: F) sank nearly 5% on high volume yesterday. The swoon followed a dreadful earnings report that put the automotive company in the bear’s crosshairs on Tuesday morning.

Net income for the fourth quarter was $1.6 billion, which is down substantially from $13.6 billion earned in 2011. Revenue rose only 1% to $36.5 billion.

Though Ford had a mediocre fourth quarter, the real problem was that management expects weakness this year. Specifically, management claimed that weakness in Europe would result in no earnings growth in 2013. The company is also mired in debt with a $14.3 billion long-term debt balance.

This chart shows the price of F shares along with an important moving average trend line to monitor.

Though everyone will undoubtedly take the bearish angle on Ford, I’m going to recommend the opposite. Believe it or not, this dip looks buyable.

The earnings from last year included valuation adjustments, making this year’s numbers appear much smaller than they actually were. Also, Ford has a $24 billion cash balance.

The shares took back the 50-day moving average (orange line above) on high volume in September. Ever since that breakout, the stock has stay above this trend line. In fact, the shares found support at the 50-day moving average on several occasion in October and November.

The 50-day moving average is often an area where institutions will make purchases. I expect to see buying when Ford dips down to this trend line, which is now near $12.30. Though the shares may not rebound and scoot to new highs immediately (like they did during the rally from October through December), Ford should find support above $12.30 and bounce to at least $13.

At that point, we’ll have to watch to see if $13 becomes resistance. So traders may want to take profits if there is selling. However, once the $13 level is taken back, I’d be looking for a move that takes the stock above $14.20.

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